I learned a new term this week at the Keller Williams camp in Austin. Agents from declining markets that have turned into Buyer Markets referred to the real estate “pretenders”, who are now dropping like flies. This year will be the first year in a decade that membership in the National Association of Realtors (NAR) declines. Austin saw this in the 1980’s. In 1986 there were over 5,000 Austin Realtors. Then the market tanked. 18 months later, there were less than 2,000 Realtors in Austin.

So who and what is a real estate pretender? They are agents who jump into hot markets and ride the wave. These can include discounters, newbies, scammers and legitimate Realtor hopefuls wanting to crack into the business. They are referred to as pretenders because they are not truly running a real estate business, but instead are just surfing a wave. They can get listings and sell them, or find buyers willing to write offers, but are not operating in a business manner that will survive a downturn. When the wave dies, so does the business, and the agent goes away.

One of the biggest real estate companies in Arizona is actually doing better now the that market has turned into a Buyer’s market. As the Owner/Broker put it during a panel discussion, “the market doesn’t matter to us. We stick to the fundamentals and the basics because we know that’s what will sustain us long term. We actually lost market share in the hot market but now we’re in the process of taking back more than we lost as the pretenders and discounters can’t compete with the results that our agents are able to provide”.

This reminded me of an interview of Warren Buffet, which I saw around 2000. The questioner essentially asked Warren Buffet if he felt like he was missing the train by sitting out the tech stock boom. In other words, by sticking to his business fundamentals, wasn’t Warren Buffet leaving huge gains on the table? Buffet just smiled and said “no”.

He trusted his method and was happy to leave the tech stocks alone. He didn’t say it, but he could have said that the investors flocking to these stocks and making money were investment “pretenders” as well. They might look smart when the market is doing well, but their true abilities are revealed by the downturn.

Similarly, when real estate markets heat up, a real estate business that remains grounded in its basic core business philosophy may be leaving some deals on the table, and letting the pretenders temporarily take away some business, but when the market turns and the smoke clears, the pretenders are gone and the remaining agents become even more valuable and needed than before.

Austin will have a downturn again. I’m not sure when we’ll cycle out of this current “good” market, maybe in 3 to 5 years. When we do turn, the market will separate the real estate professionals from the Pretenders as it always does.